Health Economics

Health Economics

Solving the procurement puzzle: why lifetime costs need to be considered in NHS purchasing



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Adrian Swindells, Director for healthcare technology specialist Distec, discusses the importance of acknowledging the bigger picture in NHS procurement

‘How much will it cost?’ It’s the key question for any procurement manager, but a particularly pertinent one for those working in the healthcare sector. The NHS is under inordinate pressure to do more with less, and to position itself as strategically as possible in order to cope with the challenges of a growing and ageing population.

As such, when a hospital, NHS Trust or commissioning group needs to invest in new technology, whether hardware or software, it is hardly surprising that cost tends to top the list of factors considered when making a purchasing decision. Individual pieces of equipment such as sophisticated scanning machines can be among the most expensive single purchases made within the NHS, whilst even smaller pieces of kit, like touchscreens and mobile carts, quickly rack up because so many are required. Headline prices might vary by hundreds or thousands of pounds, and the obvious procurement move is to go to the lowest end of the scale.

Yet cost can be measured in multiple ways, and headline figures can conceal a raft of additional implications. Relying, therefore, on the headline price alone can quickly prove to be an expensive mistake.

Unconsidered additions

First, there may be additional costs layered on top of the lead price that have not been considered. Think about an online shopper making their way through a website’s checkout process, only to be presented with an unexpectedly high shipping cost at the end.

In the case of healthcare technology deployments, such additional costs can be both diverse and hefty. Often, they relate to installation. First, time and money need to be allocated to the initial setup, which might involve significant physical labour or a complex process of software installation. Then, both hardware and software need to be carefully integrated with existing technology, which, depending on the existing portfolio, can involve purchasing brand-new interoperability platforms or even replacing existing tools and applications outright. Specialist third parties may need to be brought on board to carry out this work.

Additional costs may also be layered on for staff training, particularly when a whole new operating system or vendor has been selected. Such training may involve both an up-front cost and cost incurred by taking staff out of normal duties. Or, in the instance of software, there may be a need for additional modules that are not part of the core, basic deployment.

Predicting such additional costs accurately can be difficult, but healthcare organisations can go a long way by asking their supplier to talk them through every stage of deployment, from preparation, through installation to ongoing operation.

All in one

Consumers purchasing a new home are rightly reminded to consider the overall cost as a whole set of smaller costs. The cost of the mortgage itself consists of both upfront fees and an ongoing interest rate, whilst additional costs are required for stamp duty, legal fees, surveys and insurance. Then there are the costs of actually moving from one property to the next, and any essential maintenance or repair work that has to take place at the outset.

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Technology can work similarly. Software, for example, may incorporate ongoing subscription or licensing charges for a certain number of users. Hardware may be tied to very specific ongoing maintenance, tests and upgrade charges in order to remain compliant.

Whilst these costs should, of course, be clarified as part of the initial proposal, they can all too easily be hidden away in the small print, or not accurately modelled as part of the organisation’s ongoing growth plan. A software platform with a high cost per user license, for example, might quickly become cost-prohibitive if the organisation knows that the relevant team is going to double in size over the coming year. A piece of hardware that requires routine maintenance after performing a certain number of operations might be cost-effective at current levels of demand, but if the hospital’s catchment area is set to grow dramatically, it might quickly become a drain.

Minimising – or at least managing – these ongoing costs requires a comprehensive planning stage to any technology deployment. Such planning needs to look beyond the IT or procurement department, and consider elements such as predicted population growth and future strategy of the hospital, Trust or Clinical Commissioning Group.

Buying to last

This draws us directly to the importance of considering the expected lifespan of each proposed technology deployment, and comparing what might be a higher upfront cost against the expense of replacing a cheaper item sooner. Just as consumers are advised to invest in one or two top-quality, long-lasting investment pieces of clothing, so healthcare organisations are advised to remember that short-term purchases may rapidly become costlier in the long-term.

When it comes to software, this often requires making an educated guess as to how long a particular application will remain supported for, and certainly avoiding those that are in the process of being winded down. On the hardware side, it means considering factors such the materials used in composition, the level of detail and quality on the finish, and the ease and cost of replacing individual components as opposed to the entire piece of kit. Many pieces of hospital equipment, including mobile screens and carts, rely on an internal battery in order to operate, with the useful lifespan of the equipment therefore relating directly to the battery life. A higher-grade piece of equipment, like those produced by Howard Medical might be more expensive upfront, but if it lasts for years longer than a cheaper alternative, then ultimately it is likely to prove a less expensive choice.

Adrian Swindells

A day or a lifetime?

All of these different cost models are a reminder that the price of something today is very different from the cost of something over a lifetime. In the world of healthcare technology, the contrast between the two can be particularly striking, because there are so many additional considerations beyond the standalone price of a piece of equipment. Installation and integration costs, required upgrades, repairs and maintenance, subscriptions or licenses and predicted lifespan are all essential pieces of the overall procurement puzzle.

About the author

With well over 100 years experience between us, we've been around the editorial and medical blocks a few times. But we're still as keen as any young pup to root out what's new and inspiring.

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